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Fed ‘Stress Tests’ Clear All Banks to Issue Payouts to Shareholders

On average, requested payouts are near 100% of banks’ expected earnings over the next year, up from 65% last year

Banks are required to meet capital requirements in order to pass government stress tests. So what is capital, and how much is needed? WSJ's Liz Hoffman reports. Illustration: Heather Seidel/The Wall Street Journal

Big U.S. banks plan to increase dividend payouts and share buybacks to their highest levels in years after the Federal Reserve on Wednesday approved capital plans for all 34 firms taking part in its annual stress tests.

The approvals—the first time since the annual tests began in 2011 that all firms got passing grades—reflect a turning point for big financial institutions that have been shackled by tighter regulation since the financial crisis. They could also herald a return to precrisis days when banks were reliable dividend...